8 Tips for Buying a $5,000 Car

In my last story, Why I Don’t Buy New Cars, I offered evidence that forgoing new cars and the payments that come with them is a pretty smart thing to do because you can use the money you free up for higher purposes, like getting rich. But since standing on the side of the road waiting for a tow truck is no way to go through life, the used car buyer must be especially careful not to be penny-wise and pound foolish.

When it comes to cars, there are many versions of “used”. There’s the one-year-old car that’s virtually identical to new, with the exception that it costs 20% less. Then there’s the half-price car, three or four years old with 50,000 or 60,000 miles on it. Then there’s the car that’s the subject of this story: the $5,000 car. It’s got close to 100,000 miles on it and it’s five years old or more. It could become a reliable old friend or the worst enemy you’ve ever had.

This story focuses on the potentially most problematic, the $5,000 car, because if you can buy a reliable used car in this price range, the others will be simple to shop for.

First, watch this recent news story for the down-and-dirty, then meet me on the other side for more.

So let’s recap what we learned from that story and add a little more detail. The first thing we learned was that it is possible to find a reliable $5,000 car. In the course of researching this story I talked to three mechanics and the guy you saw, Kevin Byndloss, a professional car buyer. All four of these pros confirmed that it was indeed possible to find a reliable $5,000 car.

Here’s how I’ve gone about it in the past.

Tune up your attitude.

The more important automotive status is to you, the less likely you are to find a reliable $5,000 car. In other words, while it’s possible to buy a $5,000 Mercedes that will be trouble-free for years (I’ve actually done that and had it work out), you’re pushing your luck. When luxury cars start to break down, the repair bills can wreck your finances overnight. Solution? Put your visions of looking cool on hold and go to places like Edmunds.com used car best bets. There, you’ll find cars like the 2004 Hyundai Elantra in the $5,000 range, but no BMWs or Jags; that’s OK. You may not look hot in your Hyundai, but that’s better than sitting in a hot Mercedes on the side of the road. Check out this story about how high tech cars lead to costly repairs.

Talk to your local mechanic.

I mentioned above that I once had a reliable, $5,000 Mercedes. I found that car because I had talked to and befriended a local Mercedes mechanic. I asked him to keep an eye out for a good car at a low price and he came through for me. Mechanics are a great source for used cars, and for obvious reasons; they’ll often know the condition and service history of a car. Definitely the best source for a good car, especially if you’re not in a hurry.

Avoid car lots.

While you might find a great car at a car lot, I avoid them for three reasons, especially when seeking out an inexpensive car. First, because I’ll almost certainly be outmatched in terms of negotiating skills. Second, many have proven themselves completely untrustworthy. And finally, these guys have to make a profit to keep the lights on. Nothing wrong with that, but it’s unlikely I’ll find a true bargain by shopping there. That’s why I…

Seek out private sellers, especially referrals.

A few years ago I bought a 1994 Cadillac Fleetwood Brougham from a 91 year old lady. The car had never been in the rain and had less than 40,000 miles on it. I paid $5,000 for it, drove it for two years with zero issues, then sold it in less than a week for $6,000. While it’s possible I could have gotten that same deal from a dealer, it’s not likely. Where did I find her? She was a friend’s grandmother. If you take your time and ask around, you might get lucky. But no matter what deal you find…

Check out the car yourself.

If you’re traveling this road, you obviously want to have some degree of confidence that you know a good car when you see one. This kind of knowledge comes from two sources. The first and most important is experience. The more cars you look at, the more you’ll know a good deal when you see one; you don’t have to be a mechanic. Comparing things to one another is how you gauge relative value in anything you buy, from a new house to a new pair of sneakers. If you look at 10 1992 Toyota Corollas, by the time you’re done you’re going to know which one is the best deal. You can also check out a car’s history, either by paying a service like CarFax, or checking out the free National Online Title Database: Haven’t heard of it? Check out this story on the free National Online Title Database. And remember, when you go to physically inspect a car, always…

Use a checklist.

The professional car buyer we interviewed in the news story above has personally inspected more than 20,000 cars, and he still uses a checklist to make sure he remembers to cover all his bases. There are tons of how-to articles and used car checklists online. Read some articles, download and print out a checklist and don’t leave home without one!

Here’s a used car checklist from MSN.
Here’s some advice and a checklist from Edmunds.
Here’s some information from Kelley Blue Book.

Know your values.

The older the car, the more fluid the value. This is actually one of the best things about older cars: what they’re worth is in the eye of the beholder, at least more so than with newer ones. For example, the Cadillac I mentioned above. The little old lady I bought it from had originally offered to sell it back to the dealer she bought it from, but they only offered her two grand. I was happy to pay five and the guy I sold it to a couple of years later jumped on it at six. So look at values on sites like Kelley Blue Book or Edmunds, but don’t stop there, especially when shopping older cars. Want to know what a car is really worth? Follow auctions on eBay. You’ll find the prices cars actually fetch are often much different than published “book values”. Check out a story I did a few years back called What’s your car really worth?

Don’t ever buy without a professional inspection.

You’d (hopefully) never buy a house without a professional inspection… same with cars. Use a checklist and other tools to narrow the search, but don’t ever buy without having a mechanic inspect the car first. It can cost as little as $50 and save a ton of headaches and bills down the road. Besides, if the mechanic finds something wrong (do you doubt that he will?), you can use that information to negotiate a lower price.

Bottom line?

If the question is “can I find a reliable car for 5 grand?”, the answer is “yes”, but there’s no free lunch. The older the car, the greater the risk, so part of what you’re saving in money you’re spending in time. You’ll have to shop more, you’ll have to study more and you’ll have to hire help to make sure you don’t end up driving yourself to the poorhouse.

In my opinion, it’s worth the hassle. Because as I pointed out in my last story, Why I Don’t Buy New Cars, if you’ve got the money for car payments, that money is better spent amassing tens of thousands of dollars in net worth.

And for the record, these days I’m driving an $80,000 Mercedes S420 that I bought eight years old for 20 grand; by far the most expensive car I’ve ever owned.